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Introduction to Business Law

Lecture:01

Textbooks (or Course Materials) with Edition

Mercantile Law by M.C.Shukla


Law of Contracts by Nyazee
Contract Act 1872 by D.F.Mulla
Partnership Act 1932 by D.F.Mulla
Negotiable Instruments Act 1881 by Khargamwala
Sales Act 1930 by D.F.Mulla
Company Law 1984 by Muzammil
Labour laws

Bare Act
Companies ordinance 1984, Contract Act 1872, Partnership Act 1932, Arbitration Act 1940, Punjab industrial
relations ordinance, 2010

Reference book
Khawaja Amjad Saeed: Mercantile and Industrial Law in Pakistan,
I.R. Hashmi: Mercantile Law-Relevant Acts and Ordinances.

Reference website
www.secp.gov.pk, http://ipo.gov.pk/Default.aspx
Lecture:01

Business Law

Introduction to Law

Sources of Law
Different Types of Laws
Constitution
History of Constitution of
Pakistan
Commonwealth
Introduction to Business
Law
Types of Business

Law of Contract
Law of Partnership
Sale of Goods
Principal & Agent
Arbitration
Negotiable Instruments
Company Law
Role of IPO

Introduction to Law
Almost everything we do is governed by some
set of rules. There are rules for games, for
social clubs, for sports and for adults in the
workplace. There are also rules imposed by
morality and custom that play an important
role in telling us what we should and should
not do. However, some rules -- those made by
the state or the courts -- are called "laws".

Introduction.
Laws resemble morality because they are designed to
control or alter our behavior.
But unlike rules of morality, laws are enforced by the
courts; if you break a law -- whether you like that law or
not -- you may be forced to pay a fine, pay damages, or
go to prison.

Sources of Law
Constitution
Legislative Enactment Statue
Customs
Judicial Decisions
Treaties
Other Sources
writings of legal scholars
edicts from a king/ ruler;
Sharia law

Different Types of Laws

Public law,
Criminal law,
Tort Law,
Trusts law,
Civil law,
Family law,
Corporate law,
Employment law,
Admiralty law,
Aviation law,
Bankruptcy law and Consumer law
etc.

Constitution
A Constitution is the Skeleton of Laws for Country
A set of fundamental principles or established precedents according
to which a state or other organization is governed.
These rules together make up, i.e. constitute, what the entity is?
History of Constitution of Pakistan
The Government of India Act, 1935
The Constitution of 1956
The Constitution of 1962
The Constitution of 1973

Introduction to Business Law


Business law encompasses all of the laws that dictate how to
form and run a business.
This includes all of the laws that govern how to start, buy,
manage and close or sell any type of business.
Business laws establish the rules that all businesses should
follow.
A sensible businessperson will be generally familiar with
business laws and know when to seek the advice of an Attorney.
Business law includes Provisional and Federal laws, as well as
administrative regulations.

Ten myths about business ethics


Ethics in the workplace is about prioritizing moral value and ensuring that behaviors are
aligned with those values.
1. Business ethics is more a matter of religion than management
2. Our employees are ethical so we dont need to pay attention to business ethics
3. Business ethics is a discipline best led by philosophers, academics and theologians
4. Business ethics is superfluous. It only asserts the obvious: Do Good
5. Business ethics is a matter of the good guys preaching to the bad guys
6. Business ethics is the new policeperson on the block
7. Ethics cant be managed
8. Business ethics and social responsibility is the same thing
9. Our organization in not in trouble with the law, so were ethical
10. Managing ethics in the workplace has little practical relevance

of Business:
Solebusiness
Proprietorship
TheTypes
sole proprietorship
is the simplest
form under which one can
operate a business. The sole proprietorship is not a legal entity. It simply
refers to a person who owns the business and is personally responsible for its
debts.

Disadvantages

Advantages

Owners can establish a sole proprietorship instantly, easily and inexpensively.

Sole proprietorships carry little, if any, ongoing formalities.

A sole proprietor need not pay some taxes on himself or herself

Owners may freely mix business or personal assets.

Owners are subject to unlimited personal liability for the debts, losses and liabilities of
the business.

2. Owners cannot raise capital by selling an interest in the business.

3. Sole proprietorships rarely survive the death or incapacity of their owners and so do
not retain value

Partnership
A partnership is an arrangement where parties, known as partners,
agree to cooperate to advance their mutual interests.
The partners in a partnership may be individuals, businesses,
interest-based organizations.
The Similarities and Difference Between Sole Proprietorship and
Partnership are:
Full Liability
Taxation
Reporting
Ownership and Responsibility

Company
Companies utilize organization structure to create their business
hierarchies. Each company determines the staffing levels that it needs to
operate efficiently, and organization structures play an important role in
this determination.
Major Differences Between a Corporation and a Partnership
Structure (Trust, Joint Venture, Tenants in Common, NGO,
Association)
Startup Costs
Liability
Taxation
Management

THE CONTRACT ACT, 1872


The Act was passed on 25th April, 1872 by British India and is based on
the principles of English Common Law .
It determines the circumstances in which promises made by the parties
to a contract shall be legally binding on them.
The Act as enacted originally had 266 Sections, it had wide scope and
included.
General Principles of Law of Contract- Sections 01 to 75
Contract relating to Sale of Goods- Sections 76 to 123
Special Contracts- Indemnity, Guarantee, Bailment & PledgeSections 124 to 238
Contracts relating to Partnership- Sections 239 to 266

THE CONTRACT ACT, 1872


At present the Indian Contract Act may be divided into two parts
Part 1:deals with the General Principles of Law of Contract
Sections 1 to 75
Part 2:deals with Special kinds of Contracts such as
(1)Contract of Indemnity and Guarantee (2)Contract of Bailment and
Pledge (3)Contract of Agency
http://pakistancode.gov.pk/english/UY2FqaJw1-apaUY2Fqaa50%3D-sg-jjjjjjjjjjjjj

Agreement & Contract


Agreement:
An arrangement (usually informal) between two or more parties
that may not be enforceable by law.
Any understanding or arrangement reached between two or more
parties.
According to section 2(e)
Every promise and set of promises forming the consideration for
each other.
In short
AGREEMENT= OFFER+ ACCEPTANCE

Agreement & Contract


Contract:
A specific type of formal arrangement between two or more party
that, by its terms and elements, is enforceable by law.
According to sec.2(h), CONTRACT may be defined as

An Agreement enforceable by law .

These agreements creates Rights and Obligations between the


Parties which can be claimed in the Court of Law.(Legal
Obligation)

Agreement Vs. Contract

Agreement

Contract

Definition

An arrangement (usually informal)


between two or more parties that is
not enforceable by law.

A formal arrangement between


two or more party that, by its
terms and elements, is enforceable
by law.

Validity based on

Mutual acceptance by both (or all)


parties involved.

Mutual acceptance by both (or all)


parties involved.

Does it need to be
No.
in writing?

No, except for some specific kinds


of contracts, such as those
involving land or which cannot be
completed within one year.

Consideration
required

No

Yes

Legal effect

An agreement that lacks any of the


required elements of a contract has
no legal effect.

A contract is legally binding and


its terms may be enforceable in a
court of law.

THREE MAJOR COMPONENTS OF A CONTRACT


1. AGREEMENT
2. OBLIGATION
3. ENFORCEABILITY
.Agreement + Legal Obligation

Contract

.Agreement + Social Obligation

Contract

ESSENTIALS OF A VALID CONTRACT


An Agreement has to fulfill the following legal conditions to
become a Contract
1) Two or more parties (Offer and Acceptance)
2) Intension to create a Legal Relationship
3) Lawful Object
4) Capacity of parties (Major, Sound mind)
5) Free Consent (understanding of terms and conditions)

ESSENTIALS OF A VALID CONTRACT


6) Writing and Registration and Duly stamped (not Oral Contract)
7) Certainty (proper terms and conditions)
8) Possibility of the Performance (it should not be impossible)
9) Must not have been disqualified by any law

CLASSIFICATION OF CONTRACTS
ON THE BASIS OF

CREATION
(FORMATION)

EXECUTION
(PERFORMANCE)

ENFOECEABILITY
(VALIDITY)

- EXPRESS

-EXECUTED

-VALID

-IMPLIED

-EXECUTORY

- VOID

- QUASI

-PARTLY

- VOIDABLE
- ILLEGAL

ON THE BASIS OF FORMATION


1. EXPRESS CONTRACT-

Express contract is one which is made by words spoken or written at


the time of formation .
Example1
X says to Y, will you buy a car for Rs. 100000? Y says to X, I am
ready to buy you car for Rs. 100000. It is an express contract made
orally.
Example 2
X writes a letter to Y, I offer to sell my car for Rs. 100000 to you. Y
send a letter to Y, I am ready to buy you car for Rs. 100000. It is an
express contract made in writing.

2. IMPLIED CONTRACT
An implied contract is one which is inferred from the acts or
conduct of the parties or from the circumstances of the cases.
Example :
X, a coolie in uniform picks up the bag of Y to carry it from
railway platform to the taxi stand, without being told by Y to
do so and Y allows him. In this case there is an implied offer
by the coolie and an implied acceptance by the passenger.
Now, there is an implied contract between the coolie and the
passenger and he is is bound to pay for the services of the
coolie.

3. QUASI CONTRACTS
These contacts are based on the principles of Justice and Equity.
Quasi means as if or similar to
Also called as Implied Contracts
It is just like a Contract as it also creates legal obligations.
But the legal obligation created by Quasi Contract do NOT rest on
any Agreement, but are IMPOSED BY LAW.
Example:
Where certain books are delivered to a wrong address then they
are under an obligation to either pay for them or return them.

ON THE BASIS OF PERFORMANCE


1. EXECUTED CONTRACTIt is a contract where both the parties to the contract have
fulfilled their respective obligations under the contract.
Example:
X offers to sell his car to Y for Rs. 1 lakh.
Y accepts Xs offer. X delivers the car to Y and Y pays Rs. 1
lakh to X. It is an executed contract.

2. EXECUTORY CONTRACT- (

It is a contract where both the parties to the contract have still to


perform their respective obligations.
Example:
X offers to sell his car to y for Rs. 1 lakh.
Y accepts Xs offer. If the car has not yet been delivered by X and
the price has not yet been paid by Y, it is an Executory contract

3. PARTLY EXECUTED AND PARTLY EXECUTORY


CONTRACT:
It is a contract where one of the parties to the contract has fulfilled
his obligation and the other party has still to perform his
obligation. Example:
X offers to sell his car to y for Rs. 1 lakh on a credit of 1 month. Y
accepts X offer. X sells the car to Y. Here the contract is executed as
to X and Executory as to Y.

ON THE BASIS OF VALIDITY


1. VALID CONTRACTcontract which satisfies all the conditions prescribed by law is a
valid contract.
Eg. X offers to marry Y. Y accepts X offer. This is a valid
contract.
2. VOID CONTRACT- [sec 2 (g)]
A void contract is a contract which is valid when entered into
but which subsequently became void due to impossibility of
performance, change of law or some other reason.
Eg. X offers to marry Y, Y accepts X offer. Later on Y dies. This
contract was valid at the time of its formation but became void at

3. VOIDABLE CONTRACT:
An arrangement which is enforceable by law at the option of one or more
of the parties thereon but not at the option of other or others, is a voidable
contract.
If the essential element of free consent is missing in a contract, the law
confers right on the aggrieved party either to reject the contract or to
accept it. However, the contract continues to be good and enforceable
unless it is repudiated by the aggrieved party.
A voidable contract is originally considered to be legal and enforceable
but can be rejected by one party if the contract is discovered to have
defects. If the party with the power to reject the contract chooses not to
reject the contract despite the defect, the contract remains valid
enforceable. Most often only one of the parties is adversely affected by
agreeing to a voidable contract in which the party fails to recognize the

Eg. X threatens to kill Y, if the does not sell his house for Rs. 1
lakh to X.
Y sells his house to X and receives payment.
Here, Y consent has been obtained by coercion and hence this
contract is voidable at the option of Y, the aggrieved party.
If Y decides to avoid the contract he will have to return Rs. 1 lakh
which he had received from X.
If Y does not exercise his option to repudiate the contract within a
reasonable time and in the meantime Z purchases that house from
X for 1 lakh in good faith, Y cannot repudiate the contract.

4. ILLEGAL CONTRACT:
An illegal contract is unlawful.
Such an agreement cannot be enforced by law. Thus, illegal
agreements are always
Void -ab- initio (i.e. void from the very beginning)
Eg. X agrees to pay Y Rs.1 lakh to kill Z. Y kills Z and claims Rs.
1 lakh. Y cannot recover the amount from X because the
agreement between X and Y is illegal and also its object is
unlawful.